RIP Net neutrality?

The issue of network neutrality is provoking heated debate in the US — a sign that the Internet is moving into a new phase in its development
Written by Cath Everett, Contributor

The concept of network neutrality centres on the idea that all traffic running over the network, generally taken to be the Internet, should be treated in the same way without discrimination, and without some content being given priority.

Inherent to this view is the belief that a neutral network promotes innovation, because network operators are not in a position to dictate how that network is used or which Web sites or online services should be favoured. Consumers should get to decide what they want without their choice being skewed by third-party commercial considerations.

Net neutrality advocates claim network providers should not prevent certain types of applications from running over the network, or ban specific devices from trying to connect to it. ISPs should also not favour traffic from one online service or content supplier over another as this may enable a larger player with deeper pockets to become dominant, even if its service is inferior in quality. Such an approach could also inhibit the entry of new players onto the market, which is anti-competitive and goes against freedom of trade principles.

However, even though the US Federal Communications Commission (FCC) came out in favour of the principle of network neutrality as early as 2004, followed by the US Federal Trade Commission at the end of 2005, over the last year or so, network operators such as AT&T and BellSouth have been raising the spectre of tiered Internet services.

Although few details have been forthcoming so far, the proposition mooted is that online content and service providers should pay a tariff to ensure their traffic is given priority over other non-paying suppliers. Alternatively, such providers could be charged for faster transmission if their offerings are particularly bandwidth-hungry. Or the network operators themselves could team up with their own favoured suppliers to provide premium access offerings.

The fear here, however, is that those providers which do not sign partnership deals, refuse, or are too small to pay the required fee, could find that access to their content and services are extremely slow or even blocked. Operators have repeatedly pledged that they will not block traffic or censor certain Web sites, but point out that they are having to invest billions of dollars to upgrade their networks to cope with future bandwidth-intensive applications such as music, TV and movies.

A tiered Internet, therefore, would not only provide them with the necessary revenues to upgrade infrastructure, but also ensure that service quality could be maintained for all classes of users, whether simply downloading email or using peer-to-peer files sharing applications such as BitTorrent to download movies.

Some experts have a different take on what might be motivating network providers to push for tiered Internet services. "Network operators are beginning to question what their business model is, what their role in the industry is and how they can make profits," says Ian Fogg, a senior analyst at Jupiter Research. "The broadband market is very price competitive, and while the operators say that they have to have cheap broadband products to win and keep customers, they're also asking themselves how they can boost revenues and manage their costs."

Although sales are still currently growing in line with rising subscriber numbers, once adoption hits saturation point, the issue for network providers becomes more one of customer retention than acquisition in a market that has become commoditised. As a rule, this generally sees companies cutting prices still further to remain competitive or providing additional services as a means of generating both loyalty and new revenue streams.

To make matters even more tricky for the operators in the US and Canada, however, more customers use cable broadband than DSL broadband, which provides scant opportunity for additional revenue generation, while in Europe, the opposite is true.

On both sides of the pond, however, network providers are also starting to see a raft of new players coming onto the market offering different content and services over the very broadband lines that they provide, the most worrying ones being voice-over-IP and video streaming.

"In content terms, wherever the operators turn, there are companies that will compete with them directly. But they're thinking ‘we built the Internet so how do we make money from it now' and that's what the debate's about. They're thinking. 'Why should the Googles of this world be able to deliver their services virtually for free, when we put all the money into this?'" explains Michael Philpott, principal broadband analyst at Ovum.

As a result, the issue of network neutrality is as much about revenue protection as it is about anything else. But the debate has reached such fever pitch in the US that attempts are now being made to enshrine the concept in law. In late 2005, various provisions were included in several Congressional draft bills as part of ongoing proposals to reform the 1996 Telecommunications Act. One such provision directs the FCC to keep an eye on any incidents that could be construed as violations of network neutrality principles and to report its findings to Congress.

By May 2006, however, following intense lobbying from online content and service providers such as Amazon and Microsoft, the US House of Representatives Judiciary Committee released a five-page bill to likewise embed several new provisions into existing federal anti-trust legislation. The provisions in the Internet Freedom and Non-discrimination Act would make it illegal under antitrust law for network operators to impose fees on online content and services providers or fail to provide their own services on "reasonable and non-discriminatory terms".

The goal, according to committee chairman Jim Sensenbrenner, is to "provide an insurance policy for Internet users against being harmed by broadband network operators abusing their market power to discriminate against content and service providers".

Government statistics indicate, says Sensenbrenner, that 98 percent of Americans have, at most, two choices of broadband provider, which means that this "virtual duopoly" is ripe for anti-competitive practices. As a result, a "clear antitrust remedy is needed".

While various other measures have also been put forward to advance the cause, dissent is starting to emerge in quarters other than the network operators themselves, which could slow the proposed legislation down. In mid-May, 34 of the largest hardware vendors, including 3M, Cisco, Corning and Qualcomm, many of which are key suppliers to the telco industry, sent a letter to Congress opposing the provisions.

Their argument was that: "It is premature to attempt to enact some sort of network neutrality principles into law now. Legislating in the absence of real understanding of the issue risks both solving the wrong problem and hobbling...

... the rapidly advancing new technologies and business models of the Internet with rigid, potentially stultifying rules."

This opinion is backed by Republican Senators Jim DeMint of South Carolina and Sam Brownback of Kansas. They sent a letter to their Senate colleagues on 16 May stating that to oppose "the heavy hand of regulation... is critical if we are to maintain the Internet as an open, evolving and market-based tool, and to protect children and families from the negative aspects of Internet content that exist today".

Network operators argue that they are spending billions of dollars to provide broadband infrastructure and would be penalised "for making major improvements to the Internet" if such legislation were enacted. Online content providers, meanwhile, are accused of being anti-competitive by wanting "all Internet content to be treated the same, instead of being required to compete for consumer attention". Senators like DeMint argue, any legislation enshrining network neutrality would stifle innovation and competition.

Maribel Lopez, an analyst at Forrester Research, believes that network neutrality is unlikely to be mandated in the short-term at least. The FCC, she says, has already put guidelines in place that prohibit the blocking of traffic and the operators, which have yet to introduce tiered services anyway, are unlikely to infringe upon these as it would bring more stringent legislation down upon their own heads.

Moreover, she believes that content owners are "shrewd negotiators who will pit operators against each other to get the best deals. Attempting to block or extort cash out of content owners for prioritised delivery will create adversarial relationships at a time when operators want to negotiate distribution deals for music, movies, gaming and TV services."

But Dean Bubley, principal analyst at Disruptive Analysis, has doubts as to whether degrading the performance or blocking traffic is even practical. Not only would it generate a lot of distrust and dissatisfaction, but it also does not fit in with the way the Internet seems to be evolving in the shape of Web 2.0. He claims the technology is moving towards a theme of "bolting together a lot of different sub-components onto Web sites in a kind of DIY portal effect", which would make it virtually impossible for the providers to bill content providers anyway.

"It's a huge issue because consumers might be trying to access five different background providers from one page, and trying to work out which traffic is coming from where is difficult from a service provider's point of view. I don't think they can do that level of granular analysis because there are so many levels of abstraction when you have services embedded in other things," explains Bubley.

Things are different in the UK and the US. Europe has been subject to a high level of telecoms liberalisation, and has not allowed its network operators to control the infrastructure in the same way as the US due to local loop unbundling. This means that the competitive landscape is different, because the incumbent telcoms providers face competition from smaller players to which customers are free to move to. Nonetheless, both the UK regulator Ofcom and the Department of Trade and Industry say that they are monitoring the US situation with a view to taking suitable action here if it is deemed necessary.

On both sides of the pond, a more likely scenario than a tiered Internet based on charging content providers is one based on charging customers for "quality of service". This means that if you want to use bandwidth-hungry applications such as games or voice over IP, you'll be charged accordingly for receiving just such a "value-added service".

"So the operators won't segment the market from a speed point of view any more, it will be more based on the type of user people are. That means that if customers are just using the Internet for surfing and email, they'll pay a competitive rate, but if they're a heavy user, they'll have to take a service that allows for heavy usage if they want a good quality experience. It's starting to happen already," says Ovum's Phillpott.

However some experts, such as analyst Dean Bubley, argue that providers are already going down the charging for quality route, but are failing to clarify what they are doing to customers.

"Providers are marketing their broadband products as providing unlimited access, but in the press and public forums, they're being criticised for limiting availability and changing contract terms and conditions," says Bubley." It has to be transparent as to whether a cheap consumer product is limited or whether it is truly unlimited, and currently there's just not enough of this transparency."

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